KOTHAKOTA SRI RAMULU,VIZIANAGARAM vs. THE INCOME TAX OFFICER, WARD-2, VIZIANAGARAM

All the grounds of appeal are related to the estimation of income. The assessee is a labour supply contractor and for the A.Y.2010-11, the assessee filed the return of income electronically on 11.10.2010 admitting total income of Rs.4,76,320/- after claiming deduction under Chapter VI-A of Rs.1,00,000/-. The case was taken up for scrutiny and the AO found that for the assessment year under consideration, the assessee has received the gross receipts of Rs.2,63,53,011/-, out of which wages was Rs.2,46,28,400/- claimed as direct expenses. The AO further observed that except payment of PF, ESI etc., the entire expenditure was met by self made vouchers which is not verifiable in totality. The AO also observed that that in the immediately preceding assessment year, the AO made the addition of Rs.5,25,820/- on adhoc basis @ 15% of wages paid to temporary workers which the assessee had accepted. Since the entire expenditure was only supported by self made vouchers, the AO did not believe the expenditure, hence viewed that true and correct profits cannot be deduced from the books of accounts. Accordingly rejected the books of accounts and estimated the income @10% of the gross receipts.

Against the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) scaled down the estimation and directed the AO

Against which the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that the assessee is a labour contractor and major part of expenses was towards wages which can be made with only self made vouchers. The assessee has paid PF, ESI which is verifiable from the wages paid. The other expenditure was nominal and routine expenditure which is common for all labour contracts. The profit in this line is very less since the major part goes for the wage payments. The books of accounts were duly audited u/s 44AB of the Act and AO has not made any adverse comments on the books of accounts. The assessee has maintained the regular books of accounts and has obtained the acquaintance registers in respect of temporary labour engaged and complete details regarding number of days worked by them and the amount paid to them is duly recorded and receipts were obtained from them. The said workers cannot give bills to the assessee. Therefore, argued that since, regular books of accounts are maintained and statutory payments were made through bank account and could not obtain the pucca vouchers in respect of labour the estimation of income @8% is highly unreasonable in this case, since, the average net profit has never crossed

On the other hand, the Ld.DR argued that the expenditure was made with the self made vouchers in the earlier year i.e. 2009-10 and the assessee himself had accepted for disallowance of 15% of the payment of temporary wages for disallowance. Therefore, argued that the Ld.CIT(A) has rightly estimated the income @8%, hence, requested to uphold the order of the Ld.CIT(A) and no interference is called for.

We have heard both the parties and perused the material placed on record. The assessee is a labour contractor and the major payments goes to wages. The assessee has maintained regular books of accounts which are being audited by Chartered Accountant u/s 44AB of the Act. The assessee made the payment of PF, ESI other than self made vouchers. The assessee